Conference board calls for supply management reform

Canada’s supply managed dairy policy costs families $276 per year more than they would pay if the sector operated on world market prices, says a new report.

The Conference Board of Canada report, Reforming Dairy Supply Management — The Case for Growth, proposes a three-part plan that it predicts would increase farmer returns, expand the dairy industry and lower prices for consumers.

Production quota reform, as well as price and trade reform, would be required to compensate farmers for quota and pave the way for exports, said the report, which was released March 6.

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“This is a multi-year process that must involve removal of trade barriers, the removal of pricing restrictions so that you get market pricing, and a winding down of quota to free up the capital that’s bound up in that right now and to allow efficient farmers to grow,” said conference board vice-president Michael Bloom.

He said demand is rising for milk products in developing countries, which means Canada could market “white gold” as New Zealand has done in recent years. That country supplies 30 percent of the world market in milk, exporting 97 percent of its production from 6.5 million cows.

Canada’s 12,500 dairy farms have fewer than one million cows, and the top 25 percent of those farms produce almost half the country’s milk supply. Trade would increase the number of farms, cows and efficient dairy farm operations, the board said.

The report found no praise among Dairy Farmers of Canada.

Vice-chair David Wiens, a Manitoba dairy farmer, said only 10 percent of milk traded on the world market is produced at or above the cost of production.

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He said other countries subsidize their dairy farmers, while supply management allows the Canadian industry to sustain itself and reinvest in operations to steadily improve productivity and efficiency.

An open market “would be a matter of Canadian dairy farms having to compete against the government treasuries of other countries, and that’s not a formula that works,” Wiens said.

“My first impressions are that they (the conference board) give kind of a one-sided view of it, and I think they make some assumptions that should be challenged.”

The study said deregulation could increase production to 20 billion litres from eight billion over the next decade, leading to more dairy farms and an increase in the average herd size to 187 cows from 78.

However, deregulation would require elimination of the quota system, which has an estimated market value of $23 billion. The report said market value is different from book value because of the way quota has evolved.

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It estimated the book value of quota at $4.7 billion, which would be the cost of buying out farmers’ quota.

Wiens said discussions about deregulation and quota buyouts “are not the world we live in. We live in supply management. It’s worked well here in Canada, and it’s worked well not only for farmers but also for consumers, for processors and of course the governments are not having to subsidize dairy farmers. Why destroy a system that is working well?”

Bloom said the federal government’s emphasis on trade deals, among them the Comprehensive Economic Trade Agreement with the European Union and the TransPacific Partnership, may require it to make decisions about supply management, which has proven to be a stumbling block in other trade negotiations.

However, Wiens said the government continues to indicate strong support for supply management, noting the dairy industry’s $16 billion contribution to the economy and the 218,000 jobs it creates.

The conference board report is one of 20 being produced by the Centre for Food in Canada. Bloom said it would be discussed at the Canadian Food Summit scheduled March 18-19 in Toronto.